Tuesday, February 2, 2010

The Eviction Tax: Time for Banks to Pay for the Displacement They Cause

By Dean Preston

In his State of the Union address, President Obama announced his intention to tax the largest financial institutions “to recover every single dime the American people are owed.” His desire to recoup direct costs of bank bailouts is a positive step, but a tax on banks must go further by addressing ongoing misconduct. Every day, banks are throwing people out of their homes. Banks should be taxed for each post-foreclosure eviction they perform.

Banks have a choice after they foreclose on property. They can evict all residents or they can keep residents in their homes. Banks choose to evict all occupants of the properties they acquire through foreclosure, even if the residents are willing and able to pay market rent to stay in their homes.

Amazingly, not a single governmental policy discourages banks from making the choice to evict, a choice that is ruining lives and costing our communities millions of dollars. It is time to change the incentives. Taxing evictions would be a good start.

Bank evictions have major societal costs. People displaced from foreclosed properties are increasingly forced into homelessness, inflicting trauma on families and requiring government expenditures to house and provide basic services for displaced persons. Those who find replacement housing often must move to new areas, severing them from places of employment, schools and other support networks. Evicting residents after foreclosure also causes vacancy and blight, triggering a downward spiral in neighborhood property values and property tax revenues. All of this is due to the decision of banks to evict residents after foreclosure.

Our society can tax conduct that has costs that are not adequately addressed by the market. Such taxes, referred to by economists as “Pigovian taxes,” are levied to correct the side effects (also know as “negative externalities”) of market activity. For example, some jurisdictions impose a “carbon tax” on corporations spewing excessive pollution into the environment. The tax helps deter corporations from polluting while addressing environmental damage and other related social costs. Likewise, a cigarette tax helps deter smoking and address health care costs that result from tobacco usage.

An eviction tax would have several benefits. First, by driving up the cost of evictions, it would discourage banks from evicting after foreclosure. Banks would have a financial incentive to keep homes occupied. Second, the tax would help offset the costs to society of evictions. There is no good reason banks should not pay their fair share of these societal costs that result from their decision to evict residents from their homes. Third, the tax revenue, or at least some of it, could be used to fund direct relief to the people evicted. Former homeowners and renters who are forced out of their homes often need assistance to find new housing, cover new security deposits and pay for other moving costs. An eviction tax would raise revenue and modify behavior, while providing long overdue relief to the victims of predatory banks.

Banks have refused to change their unconscionable (and fiscally unwise) practice of kicking residents out of their homes after foreclosure. So far, displaced residents and society at large have paid the costs of these senseless bank evictions. An eviction tax would be an appropriate response to the mass evictions being carried about by banks across our nation every day.

Dean Preston is the Executive Director of Tenants Together, California’s statewide organization for renters’ rights. For more information, visit www.TenantsTogether.org.

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